I was the lucky winner of 50,000 AA miles in 2004 through a sweepstakes held by American Airlines Publishing. In the rules of the contest, the valuation of the miles was listed as $1250 (2.5 cents/mile) and I believe the prize is being reported to the IRS.

I've heard that it is possible to claim an alternate valuation of prizes for tax purposes, provided you can prove that valuation. Personally, I value FF miles at 1-1.5 cents/mile.

I don't have a problem paying taxes on the prize... I just think that $1250 is overvalued when, realistically, you could use those miles for two STL-ORD round trips valued at $100 each.

Does anyone have any experience in doing this with airline mileage prizes? Or, alternately, does anyone know any resources I could view to help in this process?

Thanks,
Greg